A Term Rider is a form of benefit for your insurance policy which supplements the coverage you have in the basic policy, designed for those who have permanent life insurance policies but face changing financial needs later in life.
This is a way for you to add term coverage to your basic permanent policy on an as-needed basis.
How Does the Term Rider Work?
Term Insurance Riders are a benefit that enables you to more coverage on an as-needed basis. Typically with a Term Policy, you would take out coverage for a specific number of years typically between 0 and 30 years. The increments of time you are allowed to use will vary from one company to the next.
Some companies will allow you to take out a life insurance rider for term coverage that lasts only five years whereas others only allow you to take out coverage in increments of 10 years. In any case, this benefit allows you to supplement the existing coverage you have with your permanent life insurance policy on a case-by-case basis as your financial needs change with time.
When you take out your permanent life insurance policy you are stuck with the amount of coverage you chose at the beginning. If something happens and you suddenly need more coverage even if you only need it for 10 years, this feature allows you to supplement the coverage you have for that amount of time without having to take out a separate policy.
This allows you to keep the premiums based on the age and health class you were placed into when you took out the original policy which can save you quite a bit of money. This is especially good if you realize that your financial needs have changed at a point when your health has diminished or you have gotten much older than when you took out the policy originally.
Who Is Eligible For a Term Rider?
Anyone with a permanent life insurance policy from a company that offers the Term Insurance Rider is eligible. Some life insurance companies may only allow you to take out the term insurance rider when you get your initial policy while others allow you to add it later.
There are different requirements and limitations to the amount of term life insurance coverage you can add to your permanent coverage based on the company. Some companies have an age limit at which point they stop allowing you to add a Term Policy to supplement your permanent life insurance coverage.
More often than not this age requirement is around the retirement age. There may also be limitations on the length of the term you can append to your permanent policy with the term insurance rider, usually, this is based on your age. The older you are the shorter the term policies available to you are going to be.
Who Should Get This Rider?
Anyone who thinks that they might need flexible life insurance coverage is going to benefit the most from this feature. If you are able to look ahead, knowing that a base permanent life insurance policy will cover your basic needs but at various points, in time you might need more coverage, you should consider adding this to the permanent policy you take out.
For example, if you take out a permanent life insurance policy when you are young and in your thirties, you might take out a base policy that provides you with $100,000 worth of coverage. A few years later you get married and now you want to increase your coverage but only for a short amount of time such as 20 years. The term insurance rider allows you to plan for these various stages in life.
Similarly, when you have children or add a financial obligation like a mortgage or a car loan, you can increase the coverage amounts you have so that they correlate with your financial obligations and the coverage expires when your financial obligations expire. Then, once all of the term rider coverage expires, you are left with the original base policy amount you took out, and that will remain in effect for the rest of your life.
How Much Does the Term Rider Cost?
The cost of each of these term insurance Riders is going to vary based on your policy and the company you choose. Most life insurance companies will charge a flat rate per unit of coverage.
A unit is typically $1,000 so for every $1,000 you might be charged $3 for the term insurance Rider if you are 30 with preferred health ratings and minimum death benefits. It is all based on the company you choose which is why you should read the fine print.
Pros of a Term Rider
1. Provides Flexible Life Insurance Protection
The main benefit of this rider is the financial flexibility it provides you. If at any point you find that your permanent policy amount is insufficient you can supplement it with this. In doing so you can take advantage of all the features that you would get with both a permanent and a term policy.
Your base policy is the permanent one, and you can pick a permanent policy that has cash value so you can borrow against that in the future. And at various increments during your life, if you have increased financial obligations you can take advantage of a Term Policy that will expire once your obligations expire so that you are not on the hook for paying into additional coverage any longer than you need.
2. Get More Term Life Insurance Coverage with No Medical Exam
Term life insurance coverage can get expensive as you get older and your health changes. With the term insurance rider, you can take out additional term life insurance coverage without the need to reapply for a medical examination.
This means that you may be able to get additional term coverage that may not be available to you if you are someone who is in poor health.
Cons of the Term Rider
1. Usually, The Rider Eventually Expires
The main drawback to this is that as mentioned it expires at some point. There is also typically an expiration at which point you are no longer able to use the feature.
So your financial obligations change and they become much more permanent or you realize that you need significantly more coverage long-term you may not be able to supplement that need with this rider.
2. More Expensive Than The Cost Of A New Term Policy
When you purchase this rider and add up the extra cost of this rider over the course of your permanent life insurance policy, it may not be worth the additional premiums just to gain $100,000 of additional life insurance coverage.
While for people in certain situations, this rider can come in handy, overall, if you are in ideal health and still young when you add more term coverage to your permanent coverage, you could likely get $100,000 of coverage for a similar rate that you are paying for the rider, without paying into it for the yeas prior to and after securing it.